Judge: Olivia Rosales, Case: 21NWCV00671, Date: 2022-12-22 Tentative Ruling

Case Number: 21NWCV00671    Hearing Date: December 22, 2022    Dept: SEC

ACCENTIAN, INC. v. HIGH PRECISION GAS, LLC

CASE NO.:  21NWCV00671

HEARING:  12/22/22

JUDGE:  OLIVIA ROSALES

ADD ON 1

TENTATIVE ORDER

     I.        Defendants HIGH PRECISION GAS, LLC; SCOTT TAKEO NAGAMI; and DAVID LEE’s Demurrer to Plaintiff’s Third Amended Complaint is SUSTAINED with 15 days leave to amend in part, OVERRULED in part, and SUSTAINED without leave to amend in part.

    II.        Defendants HIGH PRECISION GAS, LLC; SCOTT TAKEO NAGAMI; and DAVID LEE’s Motion to Strike Portions of Plaintiff’s Third Amended Complaint is DENIED in part and GRANTED with 15 days leave to amend in part.

Moving Party to give Notice.

This breach of contract action was filed by Plaintiff ACCENTIAN, INC. (“Plaintiff”) on October 8, 2021. On October 13, 2022, the operative Third Amended Complaint (“TAC”) was filed.

The TAC alleges the following relevant facts: “Plaintiff is a licensed cannabis manufacturing company specializing in the extraction of butane hash oil, which sells wholesale and directs a variety of cannabis products for manufacturers and commercial sellers.” (TAC ¶1.) “Defendants delivered disqualified ‘specialty gases’ containing illegal levels of a cancer-causing chemical to be used for extracting the cannabis oil and manufacturing various cannabis products for human consumption, to Plaintiff. Specifically, Defendant defrauded Plaintiff into purchasing what Plaintiff believed were benzene-free gases—the ‘n-Butane & Propane Mix’ with false and misleading statements and advertisements about the purity of Defendants’ products. Defendants did so by representing directly to Plaintiff that their specialty gases contained no benzene, passed the lab tests, and are safe to be used for cannabis oil extraction. Defendants also advertised the safety and purity of their gases on their website and marketing materials.” (TAC ¶2.) “In actuality, the benzene surreptitiously contained in Defendants’ products is a harmful, carcinogenic substance that contaminated Plaintiff’s production line, making it unfit for sale…. Plaintiff is also concerted that Defendants’ misrepresentations surrounding, and delivery of, contaminated gases have contaminated other products of other manufacturers and retailers—posing a substantial health risk to consumers of al types.” (TAC ¶3.)

Defendant HIGH PRECISION GAS, LLC (“High Precision”) “is a company that specializes in supplying various gases and chemicals to the cannabis extraction industry.” (TAC ¶9.) Defendant SCOTT TAKEO NAGAMI (“Nagami”) “was and is an investor, member, Chief Executive Officer, Agent for Service of Process, and/or Facility Manager of HIGH PRECISION GAS, LLC….” (TAC ¶10.) Defendant DAVID LEE (“Lee”) “was and is an agent and/or employee of HIGH PRECISION GAS, LLC….” (TAC ¶11.) “

The TAC asserts the following causes of action: (1) Breach of Contract; (2) Breach of Implied Covenant of Good Faith and Fair Dealing; (3) Breach of Express Warranty; (4) Fraud in the Inducement; (5) Fraudulent Concealment; (6) Negligent Misrepresentation; (7) Unfair Competition in Violation of B&P §17200; (8) Unlawful Business Acts and Practices in Violation of B&P §17200; (9) Unfair Business Acts and Practices in Violation of B&P §17200; (10) Fraudulent Business Acts and Practices in Violation of B&P §17200; (11) Untrue Advertising in Violation of B&P §17200; (12) Consumers Legal Remedies Act in Violation of B&P Code §17500; and (13) Restitution based on Unjust Enrichment/Quasi-Contract.

Defendants High Precision, Nagami, and Lee (collectively “Defendants”) specially and generally demur to each cause of action.

The Court notes that the subject demurrer and motion to strike are timely filed under CCP §471.5. “The defendant shall answer the amendments, or the complaint as amended, within 30 days after service thereof….” (Id.)

Uncertainty

Defendants argue that Plaintiff’s claims are fatally uncertain. This argument lacks merit because “[a] special demurrer for uncertainty is not intended to reach the failure to incorporate sufficient facts in the pleading but is directed at the uncertainty existing in the allegations actually made.” (Butler v. Sequeira (1950) 100 Cal.App.2d 143, 145-146.) Moreover, demurrers for uncertainty are disfavored and will only be sustained where the pleading is so bad that the defendant cannot reasonably respond, i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her. (Khoury v. Maly’s of Calif. Inc. (1993) 14 Cal.App.4th 612, 616.) A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Ibid.) Here, it is clear from Defendants’ other arguments that they understand what Plaintiff at least attempts to allege, and there is no true uncertainty. The demurrer is not sustained on the basis of uncertainty.

First, Second, and Third Causes of Action – Breach of Contract, Breach of Covenant of Good Faith and Fair Dealing, and Breach of Express Warranty

Whether it is written, oral, or implied, the elements of a cause of action for breach of contract are as follows: (1) the existence of a contract; (2) Plaintiff’s performance or excused non-performance; (3) Defendants’ breach; and (4) resulting damage to Plaintiff. (Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 830.) “If an action is based on a breach of written contract, the terms must be set forth verbatim in the body of the complaint or a copy of the contract must be attached and incorporated by reference.” (Id. at 459.) Alternatively, if the claim is based on a written contract, then “a plaintiff may plead the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co., (2002) 29 Cal.4th 189, 198-199.)

Plaintiff alleges that “Plaintiff verbally ordered butane that was free of benzene from Defendants—this was a key and material term of the agreement. The parties agreed that Plaintiff would be invoiced through High Five Solutions, Inc. in order to obtain a purchase discount. Later some invoices were addressed directly to Accentian. These purchases were later memorialized in multiple invoices, as per industry standard…. Plaintiffs paid for these invoices, and Defendants delivered Butane—however this Butane was not benzene free.” (TAC ¶71.)

The demurrer to the first cause of action is SUSTAINED with 15 days leave to amend. There is no written agreement attached to the operative pleading. Moreover, Plaintiff fails to adequately allege the exact terms of the agreement between the parties, or the legal effect of the contract. There are no essential terms alleged.

Any claim for breach of the implied covenant of good faith and fair must be tied to alleged breaches of express contractual provisions. (Pasadena Live v. City of Pasadena (2004) 114 Cal. App. 4th 1089, 1094.)

Defendants argue that the second claim fails because Plaintiff has not adequately pled a claim for breach of contract. The Court agrees. Given the Court’s ruling above, the demurrer to the second cause of action is SUSTAINED with 15 days leave to amend.

Similarly, Plaintiff has not adequately alleged the terms of the express warranty that Defendants allegedly breached. It is unclear how the purported express warranty attached as Exhibit 4 to the pleading applies to the alleged oral agreement between the parties. The demurrer to the third cause of action is SUSTAINED with 15 days leave to amend.

Fourth, Fifth, and Sixth Causes of Action - Fraud in the Inducement, Fraudulent Concealment, and Negligent Misrepresentation

The elements of a cause of action for intentional fraud are 1) misrepresentation (false representation, concealment, or nondisclosure); 2) knowledge of falsity (scienter); 3) intent to defraud or induce reliance; 4) justifiable reliance; and 5) damages. (See Cal. Civ. Code §1709.)

“Fraud in the inducement is the subtort of fraud. It occurs when the promisor knows what he is signing but his consent is induced by fraud, mutual assent is present and a contract is formed, which, by reason of the fraud, is voidable. [Citations Omitted.]” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294-295.)

“[T]he elements of a cause of action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (f) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612-613.)

“The elements of negligent misrepresentation are (1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage…. [T]he allegations of reliance, must be specifically pleaded.” (National Union Fire Ins. Cor. Of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 50.)

Whether intentional or negligent in nature, fraud actions are subject to strict requirements of particularity in pleading. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.) “Fraud must be pleaded with specificity… [t]o withstand a demurrer, the facts constituting every element of the fraud must be alleged with particularity, and the claim cannot be salvaged by references to the general policy favoring the liberal construction of pleadings. (Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782.) “This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’” (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.) “The requirement of specificity in a fraud action against a corporation requires the plaintiff to allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Tarmann v. State Farm Mut. Auto Ins. Co. (1991) 2 Cal.App.4th 153, 157.)

The demurrer to the fourth through sixth causes of action is OVERRULED. For purposes of surviving demurrer, Plaintiff has alleged sufficient facts. Plaintiff adequately alleges that Lee, on behalf of High Precision, made misrepresentations about the quality and condition of the butane it sold to Plaintiff in order to induce Plaintiff to purchase said butane. (See TAC ¶¶41-49, and 61.) The Court must accept these allegations as true at this stage in the litigation.

Seventh through Eleventh Causes of Action

To state a claim under §17200, Plaintiffs must allege whether the conduct complained of is a fraudulent, unlawful or an unfair business practice. To bring a claim under the fraud prong, Plaintiffs must allege an affirmative misrepresentation, conduct or business practice on the part of a defendant; or an omission in violation of defendant’s duty to disclose; and that is likely to deceive members of the public. (Buller v. Sutter Health (2008) 160 Cal.App.4th 981, 986.) To state a claim under the unfairness prong, Plaintiffs must allege that one or more of Defendant’s business practices are unfair, unlawful or fraudulent; and the remedy sought is authorized by law. (Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 676; see also Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 337.) To state a claim under the unlawful prong, Plaintiffs must allege a violation of law and cite that law. (Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 610 [demurrer to SAC which failed to allege violation of a law was properly sustained without leave to amend].)

It is unlawful for any person, firm, corporation or association, to make or disseminate or cause to be made or disseminated before the public in this state, in any newspaper or other publication, or any advertising device, including over the Internet, any statement, concerning that real or personal property or concerning any circumstance or matter of fact connected with the proposed performance or disposition thereof, which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading. (B&P Code. §17500.)

The demurrer to the seventh through eleventh causes of action is OVERRULED. Plaintiff has adequately alleged claims of fraud in order to maintain a claim under the “fraudulent” prong of the Business and Professions Code. Moreover, as argued in Opposition, Plaintiff also pleads that Defendants engaged in “unlawful” activity by purportedly violating Cal. Civ. Code §§1792.1 and 1792.2.

Twelfth and Thirteenth Causes of Action – CLRA and Restitution Claims

The demurrer to these claims is SUSTAINED without leave to amend. In Opposition, Plaintiff indicates that it is willing to withdraw any allegations pursuant to the CLRA and the unjust enrichment/quasi-contract claims to avoid further consumption of judicial resources. (See Opp. 11:1-3.)

Motion to Strike

The Motion to Strike punitive damages is DENIED given the Court’s ruling on the fraud claims above.

The Motion to Strike attorney’s fees is GRANTED with 15 days leave to amend. CCP §1021.5 states that, “[u]pon motion, a court may award attorneys’ fees to a successful party against one or more opposing parties in any action which has resulted in the enforcement of an important right affecting the public interest if: (a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the general public or a large class of persons, (b) the necessity and financial burden of private enforcement, or of enforcement by one public entity against another public entity, are such to make the award appropriate, and (c) such fees should not in the interest of justice be paid out of the recovery, if any.” (CCP §1021.5.) The criteria for awarding PAGA fees under CCP §1021.5 are not adequately alleged here. (See Woodland Hills Residents Assn., Inc. v. City Council (1979) 23 Cal.3d 917, 934-935.) Plaintiff does not sufficiently allege that there would be a significant benefit conferred on the general public, or at least a large class of persons by way of this action for the recovery of the value of its cannabis oil.